Fed nods to better economy, mum on next move

WASHINGTON (Reuters) - The Federal Reserve on Tuesday provided few clues on the prospects for further monetary easing, offering just a slight upgrade to its economic outlook while restating concerns about the high level of unemployment.

The central bank said it expects "moderate" growth over coming quarters with the unemployment rate declining gradually; in January, it said it expected "modest" growth.

It also said a recent spike in energy costs would likely push up inflation, but only temporarily. Over a longer stretch, the Fed said inflation would likely run at or below the its 2 percent target.

"Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," the central bank said in a statement after a one-day meeting.

U.S. stocks held gains after the statement and moved higher on news JPMorgan Chase would increase its dividend.

The dollar, meanwhile, hit a fresh 11-month high against the yen, and prices for U.S. government bonds slipped as traders trimmed bets on further bond-buying, or quantitative easing, from the Fed.

"The statement ... reflects a further decrease in the odds of further quantitative easing resulting from better recent data," said Troy Davig at Barclays Capital in New York.

In a further nod to a somewhat brighter outlook, policymakers said financial market strains from the European sovereign debt crisis had eased, although they continued to pose "significant" risks. The policymakers also characterized business investment as rising; in January, they noted it had slowed.
Continued...